Analysis: Narrow Ruling on Water Rates Sets Up Potential Appellate Case

Judge Dan Maguire, in his tentative ruling that came out on Wednesday afternoon, ruled that “the water and sewer rates adopted by the City of Davis meet the proportionality standards of the California Constitution, and therefore the plaintiffs claims are denied.”

The ruling was a huge victory for the city of Davis as they attempt to move forward with the water project.  The ruling also puts the issue back into the political arena, as the petitioners will turn in their signatures for an initiative that would overturn the water rates.

According to an email from Michael Harrington, the petitioners are expected to turn in their petitions at 1 pm today.  Officials from the city and county, however, are skeptical that the initiative would be able to qualify for the June ballot, given the deadlines and the course of events still needed to take place.

The political arena is precisely where Judge Maguire seemed to want to take the issue back to.  In his decision he outlined the issue narrowly: “The question for the Court is not whether these rates in toto are too high (that is a policy question for the City’s leaders and its voters), but whether they are divided in such a way that makes them illegal under Proposition 218.”

He would add, “The Court’s duty is to determine whether the rates are constitutional, and it is for the City’s elected policymakers to determine if they are fair and promote good public policy. The increased water rates will undoubtedly burden many Davis residents who are already struggling to pay their bills, but the elected City Council members, not the Court, must balance that burden against the need to address the declining quality of the City’s water supply.”

Judge Maguire also narrowed the issues before him in the legal area – literally binding himself to past precedent.

During oral arguments in December, Judge Maguire would note the discrepancy between case law and the plain language of Prop 218.  In the question as to what the relevant level of comparison was – person by person, parcel by parcel, or class by class, Judge Maguire would note, in response to the city’s argument in favor of a class by class comparison, “I understand that argument. I understand the case support for it, and there is case support for it.”

He would add, “What I’m struggling with though is how to square that concept with the language of Section 6 which says, ‘The charge shall not exceed the proportional cost of the service attributable to the parcel.’ So that seems to suggest a more granular analysis than class by class.”

In reconciling that issue, he wrote that the language of Proposition 218 would appear, “at first blush” to require the city to demonstrate on a per-parcel basis, that the rates are “proportional to the costs for that parcel.”  However, “The Court of Appeal, which this Court must follow, has rejected this interpretation, and found instead that ‘proportionality is not measured on an individual basis,’ but instead is ‘measured collectively, considering all rate payers.'”

In so doing, Judge Maguire punted on the question as to whether the case law accurately reflects the language of Proposition 218 and will allow that question to be argued at the appellate level if this case goes there.

Time after time, ruling after ruling, Judge Maguire set as low a bar as seemingly possible for the city to meet the constitutional test.

For instance, Judge Maguire acknowledged that “it is true, as plaintiffs note, that low-volume users will pay more per gallon, sometimes much more, than high-volume users.”

However, he noted, “This phenomenon is not unique to Davis, but is true of any traditional water rate structure with a fixed fee. Indeed, this phenomenon is not unique to water rates, but is common in any situation where fixed costs are recovered through a fixed fee.”

He argued that this is not a disproportionate charge since the city is merely recovering fixed costs, “even though this means that low-volume users pay more per unit, because the City incurs ‘readiness to serve’ costs that arise from potential demand.”

Judge Maguire noted that, under Bartle Wells, the fixed costs are based on the size of the parcel’s meter.  The plaintiffs argued that “there is no valid reason to set fixed charges based on meter size,” but Judge Maguire ruled that there are good reasons for this, as “a user with a larger meter has the capacity to use more water, and the new system must have the ability to meet potential peak-period demand.”

He also noted that the city has a water rate study that shows “parcels with bigger meters do in fact tend to use more water.”

It is not a perfect correlation, he conceded, because there are users with smaller meters that use more water than others with larger ones.  But the Court of Appeal, he argued, “has interpreted Proposition 218 to eschew individual proportionality analysis and to instead focus on groups of similar users.”

In the end he ruled, “As a group, those with larger meters impose both higher potential and actual costs on the system, so it is not disproportional to charge them more for the fixed component of the charge.”

Finally, Judge Maguire ruled on sewer rates and their use of “winter water” as a proxy.  The plaintiffs argued, “Winter water use does not correlate well with sewer use.”

He noted, “The plaintiffs rely on a study that analyzed winter water use in El Macero, near Davis. That study showed that El Macero residents use significant amounts of water in the winter for irrigation, and the plaintiffs infer that other users must also irrigate in the winter. Thus, plaintiffs argue, it is disproportional to use winter water use to establish sewer charges, since much of the water used in the winter does not end up in the sewer system.”

He noted, while “winter water use” is “imperfect” as a proxy for wastewater usage, “it is a better proxy than year-round use.”

He concluded, “The Court concludes that Proposition 218 may be satisfied if the agency’s rate structure and user categorizations are supported by the available data, so long as that data shows that the parcels have been divided into groups of similar users, and that there is a sound reason supporting any disparity in how the groups are charged.”

It is important to understand what Judge Maguire’s ruling means.  First of all, it is clear he regards the issue of fairness to be an issue to be determined by the political system, not the courts.  The court’s job is to determine that the division of the rates meets the constitutional standards.

Second, he was not going to overturn appellate case law.  He left the questions about the tension between past court rulings and the plain text meaning of Prop 218 to a higher court.

Finally, he ruled that there was a basis for the allocation of costs to the ratepayers.  This is where Palmdale failed.  There are fixed costs that have to be recovered charges and he believes that, while the meter system ends up charging people at the low ends in some cases far more on a per gallon basis, there are justifications for those discrepancies based on the actual costs of providing the service.

While Bartle Wells is a very crude rate structure, basing fixed costs on meter size, CBFR improves the measurement device greatly.

Judge Maguire wrote, “To promote conservation and to ease the burden on low-volume users, the City may recover some fixed costs through volumetric charges, and it has done so through the new CBFR rate structure. But the law does not prohibit the City from using a traditional rate structure that recovers all fixed costs through a fixed charge.”

If the judge’s very careful analysis and the existing case law is correct, it would seem unlikely that an appellate court would overturn the city’s water rates.  An appellate court overturning Davis’ water rates would overturn many of the water rates in the state of California.  That being the case, the plaintiffs’ best avenue is a reentry into the political system, allowing the public to determine whether the water rates meet their satisfaction.

Where that analysis could change is the court ruling that proportionality must occur on a parcel by parcel rather than a class by class basis.

—David M. Greenwald reporting

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